A breakthrough in Chinese climate policy? Not likely

Just how serious is China about climate change, and is it prepared to sacrifice growth to limit its emissions?

I argued back in April that China's 'synthetic natural gas' (syngas or SNG, which is gas made from coal) is 'bad economics, bad science and an environmental catastrophe'. I also said that 'what is striking is the ambition of Chinese plans versus the widespread scepticism of SNG worldwide and inside China itself.' Apparently, some of this scepticism is now being heard.

Datang, a syngas pioneer, has exited the business, selling its operational Keshiketeng project. The company admitted that its entire syngas business proposition was failing technically and financially; relieved investors sent Datang's stock up 23% on the day of the announcement. Meanwhile, Greenpeace published an alarming report claiming that the 50 planned Chinese syngas projects would emit 1.1 billion tonnes of CO2 annually, almost triple America's entire stated CO2 reduction target by 2020. The National Energy Administration (NEA) in Beijing has now announced certain limits on syngas projects, reportedly worried about 'an investment spree regardless of environmental and economic realities.'

But if China does dial back its syngas ambitions, will it be due to financial considerations (as in Datang's case) or because of CO2 emissions (the concerns of Greenpeace)? Syngas is such a monster that the easy answer is 'both' (and in fact a third problem, water, weighs heavily against the technology too). But the fundamental question remains: just how serious is China about climate change, and is it prepared to sacrifice growth to limit its emissions?

The Lowy Institute's Rio Tinto Fellow, Lisa Williams, has highlighted that Beijing has other priorities (diversifying its energy base, leading new technologies, reducing pollution in its cities) which happily align with climate-change objectives. This explains the paradox of a nation admired for its renewable energy commitment while its citizens live in appalling smog.

Karolina Wysoczanska at Nottingham is sceptical: China indeed sees diplomatic and commercial opportunity in the global climate change carnival, but don't it to expect it commit to any hard targets.

Yet this very idea has been tentatively held out, both by a CASS professor suggesting a coal consumption cap at 4.5 billion tonnes in 2025, and by the Advisory Committee on Climate Change dangling a longer-term 11 billion tonne CO2-equivalent limit by 2030 (from 9.5 billion today).

But these were not official statements, and they were quickly disowned as such. Furthermore, there are a number of reasons to be cautious about any future 'breakthrough' on emissions caps.

China already mines 3.8 billion tonnes of coal every year, and Chinese coal alone accounts for 20% of all global CO2 emissions. On present coal use patterns, China is on track to belch almost half of the entire world's recommended maximum 'CO2 budget' of 32 billion tonnes of CO2 by 2030.

It would therefore take a wrenching change in China's economy to suddenly alter its trajectory of rapidly growing coal use. Goldman Sachs estimates that, in addition to the 3.8 billion tonnes mined this year, another 1 billion tonnes of new mine capacity is already under construction. Coal has become so abundant in China that prices are the lowest in six years. UBS sees almost 50GW (to put in context, a really big power station is 1GW) of coal-fired power capacity added each year for the foreseeable future: 'the reality is that no other technology — wind, solar, gas, hydro and nuclear — represent a viable alternative.'

China is struggling to find conventional oil and gas deposits offshore and in shale gas. Renewable energy is attractive from a pollution-control perspective but needs expensive thermal power backup. As syngas illustrates, China will be tempted to use its super-cheap coal to substitute other energy sources where it can.

Most fundamentally, it is unlikely Beijing will act more cooperatively in the diplomatic sphere. China is sincere in perceiving itself as a developing country with a short industrial history. Collective action to protect the global commons is devilishly difficult. The Kyoto Protocol had little impact. Australia repealed a carbon tax as a business burden. The former Soviet Union is emitting well below its 1990 reference level but this is merely because its economy collapsed. America's shale gas revolution occurred not out of environmental concern but because it was profitable.

The Chinese syngas projects have almost certainly been slowed due to unsound economics, not because of concern over CO2. Notably, Beijing's NEA has banned only small 'sub-scale' syngas projects, not large ones. Maybe this is still good news, but it is premature to celebrate a shift in Chinese climate policy.

Originally published by The Lowy Institute publication The Interpreter. Republished with permission.

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